Productivity Gains and CPI

There is a lot of speculation about why median family incomes have stagnated, and why recent productivity gains haven't turned into higher real wages for workers as they normally would. I'll throw my hat into the ring with some possibilities:

Reasons it may not even be true:

1. Definition of "median household income" is faulty. The composition of a household has likely changed a lot over time. The median family of four income is actually surprisingly high and increasing nicely, but hasn't been measured since 2006.

2. a. CPI is likely overstated. The CPI doesn't take into account a lot of things that increase our cost of living. While we pay more for cars now, cars are much better than they were. The top of the line Toyota Corolla of today is a much better car than a Mercedes of the 1980's, yet we still compare its cost to a "compact car" from that era.

2.b. The CPI doesn't take into account free entertainment like Facebook and Google, or free software like Linux.

Why we aren't seeing gains in real wages:

1. Recent productivity gains are largely in rent seeking industries. The price to create and deliver old school media like music and movies has gone down to where it could be almost free, yet copyright holders continue to charge as if they haven't.

2. Workers might already have enough and are starting to work less. Once decent food and shelter are paid for, your entertainment is mostly low cost and free.

Anyway, these are all in a state of flux and there will probably be frequent updates and changes to this post.

Update:

3. Productivity gains are not flowing into big ticket things the middle class buys. This is largely because of government regulations. Early diagnostic devices are held back by bureaucracy. Capital costs to power plants are pushed up by regulatory studies lasting decades. College costs are being artificially pushed up because of subsidized loans and grants to incoming students. There are many examples of this, the worst being in healthcare.

3.b. College: I think we need to reduce the negative stigma of on-line learning. Attending a college amounts to 4 years of summer camp in reality. I would probably have done much better and skipped far fewer classes if I were able to watch a world-class lecturer's massed produced course for college credit. I learn far more in a five minute presentation by this guy than I learned in most of my engineering lectures.